Edited version of private advice

Authorisation Number: 1052310823955

Date of advice: 2 October 2024

Ruling

Subject: Income tax exemption

Question

Is Entity A exempt from income tax under section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) as a trade union pursuant to item 3.2 of the table in section 50-15 of the ITAA 1997?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 2024

Year ending 30 June 2025

Year ending 30 June 2026

Year ending 30 June 2027

Year ending 30 June 2028

The scheme commenced on:

1 July 2023

Relevant facts and circumstances

Entity A was formerly incorporated on a specified date.

Entity A changed its status from an Incorporated Association to a Company limited by guarantee in a specified year.

Entity A is the collective and representative voice of specified employees.

Entity A has sought better terms and conditions of employments for its members since its inception.

The Constitution of Entity A

•         expressly sets out the purposes of Entity A.

•         prohibits any profits being distributed to its members other than in specified situations.

•         specifies the membership classes and rules for admission.

•         specifies upon winding up or dissolution any excess property must be given or transferred to an entity that has similar objects and purposes.

Entity A receives money as part of its operations for the collective benefit of employees.

This money is used for a variety of purposes to support employees and for the administration expenses of Entity A.

Relevant legislative provisions

Trade Unions Act 1958

Income Tax Assessment Act 1997 section 50-1

Income Tax Assessment Act 1997 section 50-15

Income Tax Assessment Act 1997 section 50-47

Income Tax Assessment Act 1997 section 995-1

Australian Charities and Non-for-profits Commission Act 2012 section 25-5

Charities Act 2013 section 12

Reasons for decision

Section 50-1 of the Income Tax Assessment Act 1997 (ITAA 1997) states:

The total ordinary income and statutory income of the entities covered by the following tables is exempt from income tax. In some cases, the exemption is subject to special conditions.

The tables referred to in section 50-1 of the ITAA 1997 are contained in sections 50-5 to 50-45.

A trade union is listed at item 3.2 in the table in section 50-15 of the ITAA 1997. The trade union must meet the special conditions detailed at item 3.2 in the table in section 50-15.

Further, the exemption is subject to the special condition in section 50-47 of the ITAA 1997, that where an entity is covered by an exempt entity category but also meets the description of an 'ACNC type entity', it will not be exempt from income tax unless it is registered as a charity with the ACNC and endorsed by the ATO.

Accordingly, to be exempt from income tax under item 3.2 of the table in section 50-15, the entity must:

•         be a trade union; and

•         be located in Australia, and incurs its expenditure and pursues its objectives principally in Australia, and

•         comply with all the substantive requirements in its governing rules, and

•         apply its income and assets solely for the purpose for which the trade union is established, and

•         not be an 'ACNC type of entity'.

If the entity fails to satisfy these requirements, it will not be exempt from income tax under section 50-1 of the ITAA 1997.

Trade union

A trade union is not defined in the legislation.

As the ITAA 1997 does not define the term trade union, the ordinary meaning, which is the dictionary meaning, has been adopted by the Courts. In the Victorian Employers' Federation v. Federal Commissioner of Taxation (1957) 96 CLR 390, Kitto J stated:

The Act contains no definition of "trade union". The expression is defined in the Oxford Dictionary as meaning "an association of the workers in any trade or in allied trades for the protection and furtherance of their interests in regard to wages, hours, and conditions of labour, and for the provision, from their common funds, of pecuniary assistance to the members during strikes, sickness, unemployment, old age, etc."

In Norsemen Amalgamated Distress and Injustices Fund v FC of T 95 ATC 4227, Lee J said:

As the dictionaries confirm, it is still an essential part of the ordinary use of the term "trade union" that an organisation so described be one formed by workers to further the interests of workers in their employment and although part of the meaning of the term may include an organisation formed to provide financial aid to union members suffering adversity, the latter meaning is ancillary to, and dependent upon, the principal meaning described.

There must be a formal structure and not just a casual group of employees or workers, as held in Midland Cold Storage Ltd v Turner and others [1972] 3 All ER 773.

In the Trade Unions Act 1958 the term trade union is defined as 'any combination whether temporary or permanent for regulating the relations between workmen and employers or between workmen and workmen or between employers and employers or for imposing restrictive conditions on the conduct of any trade or business......'

The main purpose of Entity A is to protect and advance the welfare, safety, professional and industrial interests of its members and to mediate and if possible, reconcile disputes affecting individuals and/or groups of members.

Entity A is a key stakeholder in the specified industry.

It is a formal structure and not just a casual group of workers or employees.

It is considered that the activities of Entity A confirm that it is a trade union, as that term is ordinarily understood.

The trade union is located in Australia, and incurs its expenditure and pursues its objectives principally in Australia

Entity A is a resident of and is located in Australia. Entity A carries on its activities in Australia. It pursues its objectives and incurs its expenditure in Australia and therefore satisfies this requirement in accordance with Taxation Ruling TR 2019/6 Income tax: the 'in Australia' requirement for certain deductible gift recipients and income tax exempt entities.

The trade union complies with all the substantive requirements in its governing rules

Taxation Ruling TR 2015/1 Income tax: special conditions for various entities whose ordinary and statutory income is exempt (TR 2015/1) provides guidance in respect of the special conditions an entity must satisfy under Division 50 of the ITAA 1997. Paragraph 9 of TR 2015/1 provides that an entity's 'governing rules' are those rules that authorise the policy, actions and affairs of the entity. Paragraphs 18 and 19 of TR 2015/1 explain that the substantive requirements in an entity's governing rules are those rules that define the rights and duties of the entity and include rules such as those that:

•         give effect to the object or purpose of the entity.

•         relate to the non-profit status of the entity.

•         set out the powers and duties of directors and officers of the entity.

•         require financial statements to be prepared and retained.

•         set out the criteria for admission as a member of an entity.

•         require an entity to maintain a register of members, and

•         relate to the winding-up of the entity.

Entity A's governing documents include its Constitution. The Constitution sets out both substantive and procedural requirements about how the entity is to be operated.

Based on the supporting evidence and the above analysis, Entity A complies with the substantive requirements set out in its Constitution.

The trade union applies its income and assets solely for the purpose for which the trade union is established

Paragraphs 33 to 35 of TR 2015/1 states that 'the income and assets condition requires an entity to apply its income and assets 'solely' for the purpose for which the entity is established. This means that the entity must exclusively or only apply its income and assets for that purpose'.

The objects and purpose of Entity A are set out in the relevant clause of the Constitution.

The specified clauses prohibit distributions of profit to Members except as specified.

The specified clause dictates that upon winding up or dissolution any excess assets or property must be transferred to an entity having objects similar to Entity A.

There is no evidence that Entity A acts contrary to these clauses.

Based on the supporting evidence and the above analysis it is therefore accepted Entity A applies its income and assets solely for the purpose for which the trade union is established and therefore satisfies this condition.

Special conditions

Section 50-47 of the ITAA 1997

Section 50-47 provides a special condition for all entities covered by section 50-1, it states:

An entity that:

(a) is covered by any item; and

(b) is an ACNC type of entity;

is not exempt from income tax unless the entity is registered under the Australian Charities and Not-for profits Commission Act 2012.

'ACNC type of entity' is defined in subsection 995-1(1) as an entity that meets the description of a type of entity in column 1 of the table in subsection 25-5(5) of the ACNC Act 2012. Column 1 of the table in subsection 25-5(5) of the ACNC Act 2012 describes a charity.

Section 5 of the Charities Act 2013 provides that 'charity' means an entity:

(a) That is a not-for-profit entity; and

(b) All of the purposes of which are:

(i) Charitable purposes that are for the public benefit; or

(ii) Purposes that are incidental or ancillary to, and in furtherance or in aid of, purposes of the entity covered by subparagraph (i); and

(c) None of the purposes of which are disqualifying purposes; and

(d) That is not an individual, a political party, or a government entity

Application to your circumstances

Entity A's purpose is a non-charitable purpose. As such, Entity A is not capable of being a registered charity and is not an ACNC type of entity.

Section 50-47 does not apply to Entity A.

Conclusion

It is considered that Entity A meets the requirements for tax exempt status under item 3.2 of the table in section 50-15 of the ITAA 1997 as a trade union located in Australia applying its income and property solely for the purpose of which it was established. Therefore, the ordinary and statutory income of Entity A will be exempt under section 50-1 of the ITAA 1997.